"We listened to the most marvelous man..."

It was not too long ago that I received an invitation to a forum. To protect the privacy of the organizers who did a terrific job, we'll call it Y Forum. Being rather ignorant of this fast-growing industry, I was immediately keen to attend.

The forum had very credible guest speakers well touted in their fields, including apparently a man who was introduced as a "multi-million dollar portfolio manager." He was following a respectable roster that included a law professor from the University of Toronto, an editor of a publication on business strategies and the president of a venture capital company.

What followed incredibly informative presentations was this gentleman, who did not speak of the matter he was advertised to bring insight to. Instead, charismatic and an able orator, he spent his time talking about the greatness of life. He threw in remarks about his incredible team and how he graduated top of his class ever so subtly, but the majority of his remarks basically were one large motivational speech. I looked around the room and noted silently that this financial advisor had turned himself into an enigma. When he finished, he was met with a rousing applause from the audience, who seemed to forget, at least temporarily, that he had not shared one piece of information about the subject at hand.

Unfortunately, his lack of any useful information wasn't the most upsetting part of his speech. In order to impress his audience, he hit us with a startling figure that only I seemed to comprehend: He managed $10.75 million dollars for 375 families. Obviously, his intention was to illustrate the hundreds of families that placed faith in his investing acumen, while allowing the word "million" to resonate with his success and the audience's own personal visions of grandeur.

Let us get something straight folks. In this situation with 375 families, one sit-down for an annual portfolio review with a client everyday could not be done in a year. For a full-service advisor to be managing less than $11 million for this many families would suggest an average portfolio size of around $28,500, which is exceptionally low for a full-service advisor to be managing for a client [More on that another day]. Furthermore, a first year investment advisor working at a brokerage firm of one of the five major national banks is expected to gather anywhere from six to eight million dollars of assets depending on the institution. This is their target for the first year! This advisor at $11 million has a great deal further to go until he has climbed to an aura of respectability in the industry, meaning he is still at a place in his career where he has to devote most of his time to recruiting many new clients to his practice....hence, his presence at the seminar.

Dare I conclude the only way he could adequately balance that many clients, recruit more and generate enough fees off accounts of that size would be through inflicting the Deferred Sales Charge on his clients' funds. With the DSC, the client pays nothing going in but is forced to keep the money invested in that mutual fund for usually seven years. During those seven years, the sooner the money is removed out of that investment the more exorbitant the fees inflicted. This gives the client every incentive to remain in those funds and alleviates the advisor from having to worry about paying attention to the client, as their monetary penalties is more than enough reason for them to remain invested. Not a bad strategy at all for the financial advisor, but it will keep the clients' hands tied for years.

In conclusion, commission-based advisors work in an industry that is, in fact, oversaturated. With the vast majority of investments now available to virtually every broker in the industry, obtaining a speciality to recruit and market themselves to clients is becoming more challenging. Our man at the Y Forum, for example, attracted people with his amazing faith in God and in regards to having an ethical, spiritual life. People are able to relate (or aspire to relate) to him, increasing their comfort level. Once an interpersonal foundation is laid, these individuals will not dare question the quality of their financial advice simply because they now trust him.

Keep this scenario and its related concepts in mind. Hope everyone had a great Thanksgiving.

'Z'